The use of LC filters between inverter and motor terminals results in undesirable resonant oscillations in motor voltages and currents. Because passive damping methods employ physical resistors to suppress these oscillations, they contribute to additional losses. Lossless active damping methods with virtual resistors have been explored in the literature as a viable alternative. In a typical active damping implementation, current flow in a virtual resistor across the filter capacitor is emulated in a control loop using motor voltage feedback. Conventionally, the virtual resistance value is fixed based on empirical rules and left unchanged for all operating conditions. Choosing the resistance value is important, because high values may provide insufficient damping, whereas low values can lead to excessive damping and cause degraded dynamic response. A small-signal transfer function-based approach is developed in this paper for active damping design, based on operating conditions and dynamic tuning of the virtual resistance. With the control scheme implemented in a d-q frame, it provides the flexibility of using a differential damping approach in which the d and q axis resistance values need not be equal. Simulations and experimental results are provided for an active-damped, field-oriented-control based induction motor drive. Results confirm the effectiveness of active damping in mitigating resonance effects. This adds new degrees of freedom to the design of inverter output filters.